Misuse of market power bill continues its journey

The Senate Economics Legislation Committee has released its report on the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 (Bill).

Followers of competition law developments in Australia will be aware that there has long been talk of amending section 46 of the Competition and Consumer Act 2010 (Cth), with the Harper Panel recommending that the prohibition be amended so that it captures conduct that has the effect (rather than merely purpose) of harming competitors. Since then, the Government consulted with interested parties (see our blog post here), released its response (see KWM’s insights here) and then on 1 December 2016 introduced legislation (see our blog post here) to amend section 46 so that it prohibits conduct by a corporation with substantial market power that has the purpose, or likely effect, of substantially lessening competition.

The report’s recommendation to pass the legislation is not unexpected (although Labor Senators dissented). It is however significant that the Coalition Senators have recommended the removal of the proposed ‘mandatory factors’, and interesting to note the further comments by Senator Xenophon.

Mandatory factors

The version of s 46(2) proposed in the Bill provided (consistent with the Harper Panel’s recommendation) that the Court, when deciding whether conduct has the purpose or likely effect of substantially lessening competition, must have regard to whether the conduct:

has the purpose or likely effect of increasing competition, including by enhancing efficiency, innovation, product quality or price competitiveness;

has the purpose or likely effect of lessening competition, including by preventing, restricting or deterring the potential for competitive conduct or new entry.

The recommendation to remove these mandatory factors appears to stem from submissions by a number of parties (including the ACCC) that these mandatory factors would drive uncertainty and complexity in litigation, especially the mandatory factor relating to efficiency and innovation.

The Coalition Senators also recommended the introduction of a post-implementation review after 5 years of any amendments.

The ‘X factor’

Independent South Australian Senator Nick Xenophon made some separate comments and recommendations, including:

A “cost waiver order” (or “no adverse costs” order) mechanism, to allow smaller companies to take action against larger companies for alleged misuse of market power. Labor introduced its own “access to justice for small business” legislation on 16 February 2017 to the same effect but with broader application to any proceedings alleging a contravention of Part IV of the CCA. (The draft Bill also provides for Small Business Ombudsman to provide free legal advice in relation to the preparation of an application for such an order.)

Divestiture orders as a remedy for serious or repeat misuse of market power cases to ‘enable the Courts to break up serious or repeat big business offenders who have grown so large their conduct is not sufficiently influenced by Australia’s Competition Laws’. Senator Xenophon says that this would make big business think twice, or indeed three times, before proceeding to misuse their market powers.

The introduction of a defence for conduct that would be a rational business decision for a company without market power, and the likely effect of the conduct would be consistent with the long term interests of consumers. (The inclusion of such a defence was a draft recommendation of The Harper Panel, which did not find its way into the final report.

While it seems unlikely that the Government would support the introduction of divestiture as a remedy for contraventions of section 46, with the Coalition supporting the Bill and Labor opposed, it is likely that the final scope of any amended section 46 will continue to change as the Bill makes its way through Parliament.